VCE Accounting Question Thread!

[Kuroyuki]

Hi all, just a question about SACs.
Are teachers required to give us all the templates? In our first SAC our teacher made us draw up all the ledgers, trial balance etc. which was quite time consuming. I mean in reality, we're going to be given all the templates in an exam.

In the exam you will be given all the templates.
In SACS they should give you the templates, that said I'm not sure if they have to. But I agree that its time consuming and can get messy.

[BoredSatan]

Hi all, just a question about SACs.
Are teachers required to give us all the templates? In our first SAC our teacher made us draw up all the ledgers, trial balance etc. which was quite time consuming. I mean in reality, we're going to be given all the templates in an exam.

wow thats pretty unreasonable..

[smile+energy]

Hi, there

Can I get some help? I don't know how to answer this question: why the vehicle contributed by the owner was valued at its agreed value?
And how can I structure my answer?
Thanks

[TheWackyCheese]

Hi all, just a question about SACs.
Are teachers required to give us all the templates? In our first SAC our teacher made us draw up all the ledgers, trial balance etc. which was quite time consuming. I mean in reality, we're going to be given all the templates in an exam.

That's extremely unreasonable. Why would your teacher make you do that? Was it still 1 mark a minute? All templates should be given to you.

Hi, there

Can I get some help? I don't know how to answer this question: why the vehicle contributed by the owner was valued at its agreed value?
And how can I structure my answer?
Thanks

Basically the principles and characteristics you talk about here for this specific question are Conservatism and Relevance.
For example "The vehicle should be contributed at its agreed value as the conservatism principle states that losses be recorded when probably. The vehicle would have lost value overtime through use so the agreed value must be used so that the asset is not overstated. Furthermore, this provides a figure that upholds the relevance characteristic as the figure will be useful for calculating things such as depreciation which will aid in the businesses decision making" That would basically be how you structure it.
Someone feel free to correct me if I am wrong but I encountered that question in several practise SACs and that was pretty much how I answered it.

[chasej]

Hi all, just a question about SACs.
Are teachers required to give us all the templates? In our first SAC our teacher made us draw up all the ledgers, trial balance etc. which was quite time consuming. I mean in reality, we're going to be given all the templates in an exam.

Maybe try talking to your teacher about it? Just say it's so time consuming and isn't even something you have to know for the exam.

If they don't know how to make the templates for some reason maybe even show them how to make them on excel or something.

[smile+energy]

Basically the principles and characteristics you talk about here for this specific question are Conservatism and Relevance.
For example "The vehicle should be contributed at its agreed value as the conservatism principle states that losses be recorded when probably. The vehicle would have lost value overtime through use so the agreed value must be used so that the asset is not overstated. Furthermore, this provides a figure that upholds the relevance characteristic as the figure will be useful for calculating things such as depreciation which will aid in the businesses decision making" That would basically be how you structure it.
Someone feel free to correct me if I am wrong but I encountered that question in several practise SACs and that was pretty much how I answered it.

My teacher taught me that the principle this question implied is historical cost. I just don't know to structure the answer properly. 

[chasej]

Hi, there

Can I get some help? I don't know how to answer this question: why the vehicle contributed by the owner was valued at its agreed value?
And how can I structure my answer?
Thanks

The principle is the entity principle. It can't be historical coat as the historical cost is the irrelevant amount the owner purchased items for and used part of the value on a personal basis. I can write a solution later when I'm not on my phone if you wish.

[smile+energy]

The principle is the entity principle. It can't be historical coat as the historical cost is the irrelevant amount the owner purchased items for and used part of the value on a personal basis. I can write a solution later when I'm not on my phone if you wish.

Yes, please.

And I don't know how to answer this question too: if an owner contribute his vehicle to his business, should we record the vehicle at its cost price or agreed value? and why? Thanks

[chasej]

Yes, please.

And I don't know how to answer this question too: if an owner contribute his vehicle to his business, should we record the vehicle at its cost price or agreed value? and why? Thanks

why the vehicle contributed by the owner was valued at its agreed value? :
(this is more of a 5 mark discuss type answer)
Usually businesses value assets at their historical cost, the cost of the asset to the business as verified by source documents. However this is not the case when the owner contributes assets to the business, this is due to the fact that due to the entity principle, the owner and business are considered two separate entities, with accounting records and reports made on that basis, thus as the owner and business are separate any transfer of control of assets between the owner and the business must be reported as a transaction, as an exchange of goods and/or services occurred due to a capital contribution. However, although the entity principle forces a transaction to be recorded, in practice the owner and business are the one in the same, thus no receipt or other source document would exist to verify the cost of the asset to the business, thus an agreed value must be used, which is an estimate of the value of an asset at the time it is contributed to the business by the owner. The agreed value also improves relevance of accounting reports as by including an estimate of the value of the contributed asset to the business this is likely to be more representative of the potential future economic benefit to the business from the asset, then the price the owner purchased the asset at (as the owner would have likely already consumed some of the asset's value before the contribution).

if an owner contribute his vehicle to his business, should we record the vehicle at its cost price or agreed value? and why?
(made this a 2-3 mark-ish answer)
The vehicle should be valued at it's agreed value, an estimation of the value of the vehicle at time of contribution by the owner. This figure is preferable compared to the price the owner paid for the vehicle originally, the cost price, as the agreed value is more relevant to the business as the agreed value represents a figure likely to be closer to the value of future economic benefit the vehicle would provide to the business then the cost price, as it is likely the owner used a portion of the vehicles economic benefit for themselves before contribution, thus meaning the cost price would likely overstate the true value of the asset if it was used. Thus an agreed value increases relevance by including a figure which is more useful for decision making (the true value of economic benefit to the business) as opposed to a less useful figure, cost price (as the owner likely used some of the economic benefit).

[TheWackyCheese]

Actually it sort of can be historical cost instead of entity and I think it makes more sense. Its usually a case of Historical cost and Reliability vs Conservatism and Relevance.
The historical cost principles states that assets should be valued at their original purchase price as this is verifiable by source document evidence. The owner should therefore value the non current asset at its original purchase price. This will also uphold the Reliability characteristic as the amount will be verifiable by a source document. However, the asset will most likely have lost value over time due to use. Therefore, the asset will not be worth as much when it was first purchased. If the owner did contribute the asset at its original purchase price, it may be breaching the Conservatism principle by overstating its assets. Since the loss of value on the asset is probable, it should be recorded at the agreed value (the value that it is believed the asset is worth now). This will also provide a figure that upholds the characteristic of relevance as the business can now use the agreed value for decision-making such as for calculation of depreciation.
I suppose you can use entity if you wanted to but I just think its easier and makes much more sense to correlate HC and Relaibilty to Conservatism and Relevance, especially for the 4 or 5 mark questions.

Edit: I accidentally posted this just after I finished talking about reliability for the first time.

[chasej]

Actually it sort of can be historical cost instead of entity and I think it makes more sense. Its usually a case of Historical cost and Reliability vs Conservatism and Relevance. The historical cost principles states that assets should be valued at their original purchase price as this is verifiable by source document evidence. The owner should therefore value the non current asset at its original purchase price. This will also uphold the Reliability characteristic as the amount will be verifiable by a source document.

Nah. capital contributions of non-cash asset almost always need an agreed value. Capital contributions is one of the only times we deviate from historical cost in the aim of increasing relevance to the business (I believe depreciation expense is the only other exception for VCE purposes but I stand to be corrected on this).

Relevance trumps reliability in this case. The purchase price has nothing to do with the business and will likely overstate the value of future economic benefit to the business resulting from the asset, thus is very irrelevant and will breach conservatism as assets would be overstated.

I refer to the cambridge 3/4 accounting text extract from pages 8 and 9 at this link http://imgur.com/uJzoBuO

[tiadrops]

That's extremely unreasonable. Why would your teacher make you do that? Was it still 1 mark a minute? All templates should be given to you.

What's even more unreasonable is that he told us ON THE DAY of the sac that we had to draw everything by ourselves. The whole class was shocked and totally unprepared. We had a double period to do it, I was just lucky that I managed to finish in time.

Maybe try talking to your teacher about it? Just say it's so time consuming and isn't even something you have to know for the exam.
If they don't know how to make the templates for some reason maybe even show them how to make them on excel or something.

Will do.  He definitely knows how to make templates. He was being stingy about paper.

[Jason12]

what are some typical correcting entries that i may be required to do and how to do them?

[smile+energy]

why the vehicle contributed by the owner was valued at its agreed value? :
(this is more of a 5 mark discuss type answer)
Usually businesses value assets at their historical cost, the cost of the asset to the business as verified by source documents. However this is not the case when the owner contributes assets to the business, this is due to the fact that due to the entity principle, the owner and business are considered two separate entities, with accounting records and reports made on that basis, thus as the owner and business are separate any transfer of control of assets between the owner and the business must be reported as a transaction, as an exchange of goods and/or services occurred due to a capital contribution. However, although the entity principle forces a transaction to be recorded, in practice the owner and business are the one in the same, thus no receipt or other source document would exist to verify the cost of the asset to the business, thus an agreed value must be used, which is an estimate of the value of an asset at the time it is contributed to the business by the owner. The agreed value also improves relevance of accounting reports as by including an estimate of the value of the contributed asset to the business this is likely to be more representative of the potential future economic benefit to the business from the asset, then the price the owner purchased the asset at (as the owner would have likely already consumed some of the asset's value before the contribution).

if an owner contribute his vehicle to his business, should we record the vehicle at its cost price or agreed value? and why?
(made this a 2-3 mark-ish answer)
The vehicle should be valued at it's agreed value, an estimation of the value of the vehicle at time of contribution by the owner. This figure is preferable compared to the price the owner paid for the vehicle originally, the cost price, as the agreed value is more relevant to the business as the agreed value represents a figure likely to be closer to the value of future economic benefit the vehicle would provide to the business then the cost price, as it is likely the owner used a portion of the vehicles economic benefit for themselves before contribution, thus meaning the cost price would likely overstate the true value of the asset if it was used. Thus an agreed value increases relevance by including a figure which is more useful for decision making (the true value of economic benefit to the business) as opposed to a less useful figure, cost price (as the owner likely used some of the economic benefit).

Thanks very much. Very clear answers.

[Jason12]

how to record correcting entries where a receipt from a debtor was incorrectly recorded as a payment to a creditor?